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Making Tax Digital for VAT – What does this mean for small businesses?

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Written by Christian Müller, Chief Finance Officer at Moss 

 

Making Tax Digital for VAT, or MTD as it is commonly known makes up one element of the Government’s strategy to digitise the tax affairs of individuals and businesses here in the UK. MTD came into formal effect back in 2019, when it became mandatory for all VAT-registered businesses with a taxable turnover above the £85,000 VAT threshold to keep digital records and process their VAT return information through MTD-compatible software.

The aim of MTD is to deliver a modern, trustworthy tax system, simplifying the tax process and supporting the UK in its goal of going digital. Indeed, the expectation is that by signing up for MTD, most businesses will experience long-term benefits, which include reduced errors and time saved in managing their tax affairs, according to the Government.

The scheme is proving popular, with government data reporting that almost 1.6 million taxpayers have joined MTD for VAT with more than 11 million returns successfully submitted as of December 2021.

Things changed earlier this year, however, when MTD requirements were extended to all VAT-registered businesses, including those that fall below the £85,000 threshold. We have just passed the November 1st cut-off, and as you might expect, the scheme now encompasses many previously excluded small businesses – so what will this mean for the future?

MTD continues to provide new opportunities for SMBs

During trial periods, businesses reported experiencing a number of benefits from using MTD-compatible software. There are an array of reasons for this, but the most obvious benefit is rooted in the fact that MTD-compatible software is built from the ground up to help be accurate, and reliable. The whole purpose of the software is to help you get your taxes right the first time – a notoriously difficult task that requires you to have confidence that the data you are reporting is accurate and not subject to time delays. The software exists to tackle one of the most common pain points for businesses and individuals alike; gone are the days of submitting your taxes and worrying for weeks about getting a call from HMRC telling you that something isn’t right! With new taxation software, businesses are getting peace of mind, for half the time investment previously required.

Christian Muller

Secondly, having the right software in place to make record-keeping as streamlined a process as possible has a significant consequential impact. By bringing on digital tools to help, organisations can centrally store all their data, which gets rid of the need to switch between different systems. Tasks that were previously done manually can be automated, resulting in significant time saving across the board. When it comes to the day-to-day functioning of businesses – whether it’s a sole trader keeping their own books, or an accountant in charge of tracking transactions on a larger scale, digitising the process makes the whole operation more efficient

However, the largest opportunity created by MTD may not be related to taxes at all. MTD will prove to be a catalyst for growth and internal reforms for many SMBs that were previously hesitant to take the leap towards digital earlier. Many providers of MTD compliant software can help small businesses with a whole lot more than their taxes. Spend management solutions provide businesses with the means of tracking and controlling all company spend. These solutions in particular are significantly improving productivity amongst finance teams by giving them more visibility on business transactions, using data analytics to highlight spending trends, automating month-end reporting, and more. This is useful for complying with MTD requirements since it significantly reduces error by automating previously manual tasks and increasing the integrity of data fed into reports.

Even though this is a government-backed initiative, businesses are thriving from having real-time accounting data, as well as accountants, tax advisors and bookkeepers. It’s incredibly exciting that businesses are now able to make data-driven decisions, in real-time, which in turn helps them run more efficiently, look after customers better, and explore new monetisation opportunities.

Digitising processes can help SMBs to navigate a competitive market

Attitudes of those in the industry have already bought into digitisation, with a recent survey revealing that 57% of accounting professionals predict accountancy will become completely cloud-based or automated within the next few years as the sector embraces greater levels of innovation.

Since MTD is enforcing higher rates of digital transformation in the finance and accounting sectors, and the buy-in is there from professionals in the field, we are seeing more opportunities emerge for competition to grow within the accounting software market. Of course, the power to transform SMBs and ensure their success lies with the decision-makers, who hold the key to selecting the right, tailored, solution for their company. However, to be really effective, what is needed amongst those decision-makers is an acute awareness of their business needs and the various solutions that exist to serve them.

The greater the understanding is amongst those in control of business finances, the easier it is for them to make the right calls, and bring technology on board that either gives them a holistic view of their operations and enables them to make better business decisions or fits easily into their existing portfolio of solutions. Either way, the result should be a significant value-add. Ultimately, buy-in into the right solutions can lead to investment which drives even greater innovation in digital services. In the case of spend management solutions, we are already seeing companies with a need to streamline accounting processes and increase efficiency benefit immensely.

Changes to expect in the coming years

The tech in this area has already been improving rapidly, but this month’s MTD deadline is set to act as a further catalyst, with all newly-established VAT-registered companies entering the market in need of compliant software to support their business journeys.

Digital spend management tools are already delivering on invoice management, reimbursements, cash flow insights, and automated accounting to help businesses streamline their internal operations and focus on their growth strategies – all in addition to helping them comply with MTD requirements. In the coming years, we can expect to see those that have already invested not only benefit from having more accurate data and an easier taxation process but from time and cost savings too, as well as more agile and reliable financial operations more broadly. All this is being delivered as a by-product of the nudge towards digitisation provided by the MTD decision and will result in far greater investment into the sector in the coming years.

The power of spend management not only serves existing businesses, of course, but new businesses entering the market, too. The great advantage for new organisations is that they are witnessing tried-and-tested spend management solutions reduce the margin of error in accounting, making the decision to invest themselves far easier. This critical juncture for taxation and accounting is steering us towards a more innovative future for the industry that will see SMBs keep pace with their larger competitors and create a competitive market where the ‘best tech wins’ – regardless of company size and stature.

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Ransomware chokes COBRA: How AI-powered data analysis can support financial services’ plight

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By Toby Butler, Financial Crime Solutions Manager at Ripjar

 

Ransomware attacks are on the increase in the United Kingdom. Most of the British Government’s COBRA meetings have been convened in response to ransomware attacks, showing how cybersecurity breaches are as pressing as national emergencies and crises. The National Cyber Security Centre’s (NCSC) annual review found this year that the country was hit by 17 ransomware incidents that were so impactful they “require a nationally coordinated response”. That extends to the financial services sector, which saw an increase of ransomware attacks with 55% of organisations hit in 2021.

Where does this leave the sector and how can artificial intelligence and machine learning be instrumental in understanding the risks companies face against future ransomware attacks?

Toby Butler

Company information is being stolen and sold to different threat groups, who prey on the individuals in that organisation who are more likely to pay them. The UK is one of the most cyber-attacked countries in the world and the Government has been criticised for being “ill-equipped” to deal with this exponential rise of fraud cases.

 

Ransomware-as-a-Service

Ransomware is one of the most common forms of cybercrime. Fighting it has become one of the biggest problems that organisations today face during their everyday operations. For instance, Malware (malicious software) encrypts the files of a single computer, then works its way through an entire network to reach the server and inflict maximum damage. Company information is being stolen and sold to different threat groups, who prey on the individuals in that organisation who are more likely to pay them.

When these attacks occur the victims, more often businesses, are left with minimal options. If they have substantial backup solutions already in place, they can attempt to restore the encrypted data to their servers. But if that data isn’t already secured elsewhere, they may need to pay a ransom to the criminals behind the attack. Thereby allowing the business to function once again and restoring their reputation. The cost of paying the ransom will feel considerably smaller compared to starting a business again from scratch. Sophos’ State of Ransomware in Financial Services 2022 report found that 52% of financial services organisations paid the ransom to restore their data, the average remediation cost in financial services was US$1.59M.

Cybersecurity Ventures estimates that ransomware is set to cost global businesses more than $256 billion by the end of 2031. By that token, organisations need to be extremely mindful of the potential threats they may face. Businesses need to understand the methodologies these hackers use, to address the weaknesses within their domain and take measures to isolate and prevent further ransomware attacks from happening again.

 

The rise of WAMs

According to a recent report by security firm CyberSixgill, 19% of the 3,612 cyberattacks that took place in 2021 were traced back to Wholesale Access Markets – or WAMs for short. WAMs are, in essence, underground internet flea markets. These markets are where aspiring attackers come to purchase network access from threat actors – the individual or entity involved in carrying out the cyber-attack. Types of threat actors include insiders, cybercriminals, rival organisations, or even nation states stealing data.

WAMs sell access to multiple compromised endpoints (or pathways) for around 10-20 dollars. Researchers found that WAMs listed access to approximately 4.3 million compromised endpoints in 2021, which include access to both provider and enterprise software (for example, an organisation’s Slack channel) up to 180 days before the attack itself took place. This shows how long these compromised endpoints remain undetected without proper internal analysis.

 

How can Financial Services stay ahead of the curve?

The use of Artificial Intelligence (AI) and machine learning is undisputed across modern businesses and sectors, and continues to revolutionise processes across the board. AI is a significant player in the financial services industry, building the ‘cyber-wall’ against nefarious users. It gives organisations optimal insights into reducing the likelihood of a ransomware attack in the future.

Namely, AI and machine learning collects and analyses vast amounts of messy (structured and unstructured) data from disparate sources. The challenge for the sector is to understand the volume and variety of the raw data collected from any source to build better protection in the future.

Structured information could be best understood as the clear data we see in a table. For example, the following attendees made a business meeting: first name – Joan, surname – Smith, age – 46. But unstructured information is information presented in a complex manner. For example, ‘there were five people who attended the business meeting, one of whom was forty-six and called Joan Smith’. Naturally, due to the complex nature of the prose, it would be more difficult for a machine to process that data into a digestible format for further risk analysis. This is where AI continues to prove invaluable.

AI uses natural language processing to understand the information provided on the web. As the software continues to evolve, natural language processing reads the information in a way a human would to extract the key information from the text. By incorporating AI and machine learning within an organisation’s IT infrastructure, companies operating within financial services can be better equipped to handle cybercrime.

These tools are flexible and adaptable, they can be configured to analyse different types of data from different sources to curate key insights. This collated information provides a better analysis of the organisation’s exposure, allowing them the opportunity to get upstream in preventing future attacks. This kind of approach is essential to processing listings on WAMs.

The power to analyse data to identify weakness is vital in the battle against cybercrime. It gives organisations a better understanding into what they could expect to see in the future. Hosting the correct data, and with the analytical skills, financial organisations can gain a better understanding of the methodologies and weaknesses in-house that attackers use and exploit to hold them to ransom. Organisations can then use this as a reference to pinpoint compromised endpoints, giving them a chance to reduce access before this route can be exploited and ruin their business.

With cybercrime and ransomware continuing to remain prevalent, it’s vital that financial services companies understand how they can get ahead of the curve and build a robust security platform within their IT infrastructure that can withstand an attack. In 2022, a ransomware attack occurred every 40 seconds. The mindset for the sector needs to be one of when, not if.

Organisations need to be thinking about an attack now – before it’s happened. Pre-planning and preparing for the worst possible outcome from future threats and adversaries. The introduction of AI and machine learning in the fight against cybercrime is a must, and the sooner the industry gets behind in implementing AI, the safer it will be through the next decade.

 

 

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SVEA BANK ACQUIRES AREX’S FINTECH OPERATION IN FINLAND

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AREX Markets, the data-driven FinTech company that drives financing costs down for SMEs and enables them to get paid quicker, has announced the sale of its Finland operations to Swedish payment and financing institution Svea Bank.

With the deal, Svea will further strengthen its position as a corporate financier, as AREX’s c.1200 Finnish customers and partnerships in the areas of financial management and financial management software will be transferred to the bank’s portfolio. The Finnish operation of AREX has financed over EUR 500M worth of invoices.

AREX’s Spanish and UK operations remain unaffected and remain focused on building embeddable financing products for third party platforms. Customers in Finland have been informed of their transition, and their contracts and service details will port across to Svea.

Svea is reshaping the playing field of corporate finance in Finland, and taking on the operations of AREX in the region is a natural step to strengthen their own business and at the same time offer AREX’s partners and customers an easy path to a wider range of services than before.

“Over the years, Svea has grown a lot also through business transactions, therefore acquiring AREX’s business operations in Finland was a good and natural solution for us. In addition, the deal is pleasant for us at Svea because the focus of our activities is to help partners and customers succeed – offering AREX’s partners and customers a wider range of services is exactly that,” says Pasi Väre, country manager of Svea in Finland.

The deal also brings new opportunities for AREX to focus on the UK and Europe in its roll out of embeddable financing products, which can be white-labelled by neobanks, ERPs and accounting software alike. The business is seeking to bridge the liquidity gap faced by most small businesses in the face of a recessive economic climate.

UK SME’s can continue to access AREX’s core invoice financing product through the Xero marketplace.

“For us at AREX, this is a great step: we are developing a stronger presence in the field of embedded finance, which is underpinned by our sophisticated marketplace software, our strongest point,” says AREX’s CEO, Airto Vienola.

“For the AREX team it was extremely important that we find the best possible corporate financier to take care of the business’ customers and partnerships in Finland. Svea convinced us with their customer and partner-centric approach”, adds AREX’s co-founder Perttu Jalkanen.

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